Legislature(1999 - 2000)
02/08/2000 08:15 AM House CRA
| Audio | Topic |
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE COMMUNITY AND REGIONAL AFFAIRS
STANDING COMMITTEE
February 8, 2000
8:15 a.m.
MEMBERS PRESENT
Representative John Harris, Co-Chairman
Representative Andrew Halcro
Representative Lisa Murkowski
Representative Fred Dyson
MEMBERS ABSENT
Representative Carl Morgan, Co-Chairman
Representative Reggie Joule
Representative Albert Kookesh
COMMITTEE CALENDAR
HOUSE BILL NO. 304
"An Act relating to issuance and sale of revenue bonds to fund
drinking water projects, to creation of an Alaska clean water
administrative fund and an Alaska drinking water administrative
fund, to fees to be charged in connection with loans made from the
Alaska clean water fund and the Alaska drinking water fund, and to
clarification of the character and permissible uses of the Alaska
drinking water fund; amending Rule 3, Alaska Rules of Civil
Procedure; and providing for an effective date."
- MOVED OUT OF COMMITTEE
PREVIOUS ACTION
BILL: HB 304
SHORT TITLE: CLEAN WATER FUND/DRINKING WATER FUND
Jrn-Date Jrn-Page Action
1/21/00 1969 (H) READ THE FIRST TIME - REFERRALS
1/21/00 1969 (H) CRA, JUD, FIN
1/21/00 1969 (H) FISCAL NOTE (DEC)
1/21/00 1969 (H) ZERO FISCAL NOTE (REV)
1/21/00 1969 (H) GOVERNOR'S TRANSMITTAL LETTER
1/21/00 1969 (H) REFERRED TO COMMUNITY & REGIONAL
AFFAIRS
2/08/00 (H) CRA AT 8:00 AM CAPITOL 124
WITNESS REGISTER
DAN EASTON, Director
Division of Facility Construction & Operation
Department of Environmental Conservation
410 Willoughby Avenue, Suite 105
Juneau, Alaska 99801-1795
POSITION STATEMENT: Presented HB 304 and answered questions.
MIKE BURNS, Program Manager
Municipal Grants & Loans
Division of Facility Construction & Operation
Department of Environmental Conservation
555 Cordova Street
Anchorage, Alaska 99501-2617
POSITION STATEMENT: Answered questions concerning HB 304.
CRAIG TILLERY, Assistant Attorney General
Environmental Section
Civil Division
Department of Law
1031 West 4th Avenue, Suite 200
Anchorage, Alaska 99501-1994
POSITION STATEMENT: Offered clarification with regard to who
qualifies for these loans.
LARRY HANCOCK, City Manager
City of Cordova
P.O. Box 1210
Cordova, Alaska 99574
POSITION STATEMENT: Testified that the City of Cordova strongly
supports the passage of HB 304.
ACTION NARRATIVE
TAPE 00-7, SIDE A
Number 0001
CO-CHAIRMAN called the House Community and Regional Affairs
Standing Committee meeting to order at 8:15 a.m. Members present
at the call to order were Representatives Harris, Halcro, Murkowski
and Dyson. Representatives Morgan, Joule and Kookesh were not in
attendance.
HB 304-CLEAN WATER FUND/DRINKING WATER FUND
CO-CHAIRMAN HARRIS announced that only order of business before the
committee would be HOUSE BILL NO. 304, "An Act relating to issuance
and sale of revenue bonds to fund drinking water projects, to
creation of an Alaska clean water administrative fund and an Alaska
drinking water administrative fund, to fees to be charged in
connection with loans made from the Alaska clean water fund and the
Alaska drinking water fund, and to clarification of the character
and permissible uses of the Alaska drinking water fund; amending
Rule 3, Alaska Rules of Civil Procedure; and providing for an
effective date."
Number 0083
DAN EASTON, Director, Division of Facility Construction &
Operation, Department of Environmental Conservation (DEC),
commented that HB 304 is an exciting piece of legislation, which is
part of a package that also proposes some changes in regulation.
This combination of legislation and regulation amendments would
make some substantial changes to how the loan programs are
operated. He informed the committee that HB 304 has the following
two objections. One objective is to save the state $1.5 million
each year, in general funds (GF). The other objective is to make
water and waste water loan programs self-supporting.
REPRESENTATIVE DYSON moved to open the hearing on HB 304. There
being no objection, HB 304 was before the committee.
Number 0340
MR. EASTON informed the committee that "we" [Division of Facility
Construction & Operation, DEC] operate two loan programs, which
make loans to communities to build water and waste water projects.
These two loan funds are similar to the permanent fund in that they
were created in statute and accounted for separately in the funding
for the treasury. He pointed out that money comes from three
sources. The primary source of funding is the yearly grant from
the U.S. Environmental Protection Agency (EPA), which must be
matched on a 5:1 basis. Currently, that grant is being matched
with state general funds, which amounts to $7.5 million for the
Drinking Water Fund and $8 million for the Clean Water Fund.
Therefore, $1.5/$1.6 million would come from the state GF. Before
the funds are loaned, the funds earn interest. He explained that
money is taken out of the fund to loan to communities to build
clean water and/or waste water projects. Upon completion of the
project, the community repays the loan with interest. Therefore,
the money returns to the fund.
REPRESENTATIVE DYSON inquired as to the difference between the
Clean Water Fund and the Drinking Water Fund.
MR. EASTON explained that the Clean Water Fund loans money for
waste water projects while the Drinking Water Fund loans money for
drinking water projects. He further explained that the Clean Water
Fund does not include drinking water because the fund was
established under the federal Clean Water Act, which primarily
deals with waste water.
MR. EASTON pointed out that HB 304 has two parts. Sections 1-17
deal with providing the agency bonding authority for the Drinking
Water Fund. The agency already has such authority for the Clean
Water Fund. The second part of HB 304, Sections 18-22, deal with
providing the agency the authority to establish a long-term way to
pay for the program's operating costs.
MR. EASTON addressed the portion of the legislation which deals
with the bonding authority. He referred to a diagram entitled,
"Proposed Fund Capitalization Process" which is similar to the
diagram entitled, "Existing Fund Capitalization Process." The
difference is that under the proposed fund capitalization process
there is an option with regard to the $1.5/$1.6 million that comes
into the loan funds under the existing fund capitalization process.
He explained that the option under the proposed fund capitalization
process would allow the following. With bonding authority and
enough interest in the loan fund, interest earnings could be taken
out of the fund and used to retire bond debt. Furthermore, those
bond proceeds could actually be used to supplant the state GF
match. Mr. Easton clarified that with bonding authority the state
agency would sell bonds for $1.5 million and use the bond proceeds
for a match. Then the interest earnings would be taken from the
fund to retire the bond debt. Therefore, the bonding mechanism
would replace the need for the $1.5 million in GF each year for
each of the loan funds.
CO-CHAIRMAN HARRIS asked if, every year, the agency spends all the
money it receives from both the state match and the federal grant,
plus administration.
MR. EASTON replied yes.
CO-CHAIRMAN HARRIS surmised then that the balance in the fund at
the end of every year is zero.
MR. EASTON clarified that there is always some money in the fund
that has been returned to the fund and has not yet been loaned out
and/or grant money that has not yet been loaned out. There is
always a balance in the fund. He agreed with Co-Chairman Harris'
assessment that this is not grant money to communities but rather
a loan.
CO-CHAIRMAN HARRIS surmised then that the principal in interest
being paid is being funneled back into the fund. He asked if Mr.
Easton projected to earn enough interest off the return investment
in order to pay the bond every year.
MR. EASTON answered yes.
Number 0857
REPRESENTATIVE DYSON inquired as to the fate of those communities
that need clean water or waste water treatment, but do not have the
resources to repay.
MR. EASTON emphasized that this is one program, a loan program.
There are also two grant programs. One of the grant programs
serves the larger communities while the village safe water program
serves the smaller communities.
REPRESENTATIVE MURKOWSKI recalled that Mr. Easton had identified
that one of the purposes of Section 1 is to establish the bonding
authority for the Drinking Water program. Why has this bonding
process not been used in the past to finance these loans?
MR. EASTON deferred to Mr. Burns.
Number 0968
MIKE BURNS, Program Manager, Municipal Grants & Loans, Division of
Facility Construction & Operation, Department of Environmental
Conservation, noted that the agency just acquired bonding authority
for the Clean Water Fund about 3.5 years ago. After that there
were several changes in the EPA program, which caused a slight drop
in demand at that time. Since that time, demand has accelerated.
He also noted that one bonds only when necessary.
MR. BURNS explained that because of the success of the Clean Water
program in its first six or seven years, a large corpus was built
up in the fund. In the last three years, all of the corpus has
been lent off. All of the assets are in progress in one form or
another.
REPRESENTATIVE MURKOWSKI commented that this type of arrangement
appears to be an easy way to facilitate the money back into the
loan and pay off the bonded indebtedness. She asked again why this
bonding process has not been used before; was the financial
where-with-all not available?
MR. BURNS informed the committee that this particular bonding
device has only come about recently. Only one other state has used
this [bonding device]. The Internal Revenue Service (IRS) and the
EPA have approved this bonding device. He agreed with
Representative Murkowski that this particular bonding device was
not available before.
Number 1123
REPRESENTATIVE DYSON referred to the DEC's fact sheet entitled
"Loan Fund Bonding and Fee Authority Legislation" dated February 1,
2000, and read the following, "In addition to the annual
contribution of state and federal capitalization money, ...." He
then referred to page 1 of the fiscal note, which shows a GF match
of minus $1.5 million.
MR. EASTON explained that the minus $1.5 million in GF would be
saved. There would also be a plus of $1.5 million in bond
proceeds. He further explained that the fiscal note shows a
decrease in the GF match in the amount of $1.5 million while the
Drinking Water Fund bond receipts increased by $1.5 million.
REPRESENTATIVE DYSON inquired as to the amount of the annual state
contribution; is it minus $1.5?
MR. EASTON replied it is zero. He specified that it is the $70,000
that it will cost to go through this bonding process. In further
response to Representative Dyson, Mr. Easton stated that currently
it costs $1.5 million.
REPRESENTATIVE DYSON asked if the delta comes from the EPA grant
funds.
MR. EASTON answered that the delta comes from taking the money out
of the loan fund versus taking it from the GF. In further response
to Representative Dyson, Mr. Easton said that he expected the EPA
grant to amount to $8 million for the Clean Water Fund and $7.5
million for the Drinking Water Fund. In further response to
Representative Dyson, Mr. Easton did not anticipate that money to
be enough. He pointed out that the second part of HB 304 is
present because "the pipe has an end to it." Although no one knows
for certain, the EPA says that the last year it will ask to make
the grant for the Clean Water Fund is fiscal year(FY) 2003 and
fiscal year 2008 for the Drinking Water Fund.
REPRESENTATIVE DYSON understood then that for three years, the fund
will receive about $15 million, while in another eight years the
fund would receive about half of that. That will build up and the
fund will perpetuate itself because the community is repaying.
Number 1374
REPRESENTATIVE HALCRO asked if there have been any repayment
problems with communities that have been repaying the principal and
interest on these loans.
MR. EASTON replied no, there is a zero delinquency rate. There has
never been a late payment.
REPRESENTATIVE HALCRO inquired as to the history of the EPA grants.
MR. EASTON answered that the EPA grants have remained relatively
constant for the last few years. However, there has been a slight
increase in the Clean Water grant while the Drinking Water grant
has been fairly stable.
REPRESENTATIVE DYSON inquired as to who the committee is referred
to in the legislation.
MR. EASTON answered that the State Bond Committee is the committee
that determines where the money will go. The State Bond Committee
already exists and consists of three commissioners appointed by the
governor.
MR. BURNS, in further response to Representative Dyson, explained
that the State Bond Committee consists of the Commissioner of the
Department of Revenue, the Commissioner of the Department of
Economic Development and the Commissioner of the Department of
Administration. The State Bond Committee has been in place for
many years.
Number 1500
REPRESENTATIVE DYSON indicated his assumption that the State Bond
Committee does not have the expertise to evaluate a sewer plant,
for example. Therefore, he further assumed that the agency would
prepare that committee with a brief which it would review and
approve or disapprove.
MR. BURNS agreed with Representative Dyson's assessment. In
further response to Representative Dyson, Mr. Burns said that the
State Bond Committee has never turned down a package the agency
brought before it. He specified that the agency has only brought
one package before the State Bond Committee.
REPRESENTATIVE DYSON commented, "So, all the years that one portion
of this has been in place, you've only used it once?"
MR. BURNS noted that some of the developments are fairly "fresh."
MR. EASTON interjected that this one will be used every year.
MR. BURNS, in response to Representative Dyson, specified that the
Clean Water Fund has been in place since 1989. He further
specified that [the agency] received bonding authority on the clean
water side only 3.5 years ago. Furthermore, it takes about a year
to get a bond proceed issue out.
REPRESENTATIVE DYSON surmised then that the delinquency rate, which
Representative Halcro inquired about earlier, is one for one.
MR. EASTON clarified his understanding that Representative Halcro's
question referred to whether the communities had been repaying the
loans. He reiterated his response that the communities had been
repaying the loans.
REPRESENTATIVE DYSON surmised then that on the bonding portion, the
delinquency rate is one for one. He asked how long the bonding
authority has been in place.
MR. BURNS pointed out that the agency has received approval of the
package, but no bonds have been issued. He indicated that the
agency is looking to HB 304 to create a more efficient package with
the drinking water side.
Number 1652
REPRESENTATIVE HALCRO returned to the issue of these programs due
to be phased out. When that occurs, how will the debt be repaid?
MR. EASTON emphasized that the programs are not intended to be
phased out. However, the EPA grants will stop in FY03 and FY08.
By that time, the funds will be self-supporting. He informed the
committee that these are large funds. For example, the Clean Water
Fund will have approximately $140 million in FY01 while the
Drinking Water Fund will have $65 million at that time. Those
amounts will have substantially increased by the time the grants
end. Mr. Easton explained that when these programs were
established, the idea was that the EPA gave money and the state
contributed money. Therefore, the funds grew and once the fund was
a certain size, money would be loaned to communities. That money
would return back to the fund with interest, and therefore the
funds would be self-sustaining. Furthermore, the funds should
actually continue to grow even without any money from the EPA or
the state.
REPRESENTATIVE HALCRO surmised then that after the grants end, the
agency would not return to the legislature to ask for any GF.
MR. EASTON agreed that would not happen with HB 304. Without HB
304, the agency would have to come before the legislature and
request funds in order to continue the programs.
REPRESENTATIVE MURKOWSKI asked if her understanding that this
financing mechanism does not place an obligation to the state other
than the match into the loan fund would be correct. Those monies
go out to the communities that does the project. The communities
are obligated [with regard to maintenance], but the state is not.
MR. EASTON replied yes.
Number 1824
CO-CHAIRMAN HARRIS related his understanding that the agency
anticipates, once the EPA grants end, that one of the funds will
have about $140 million and a smaller amount in the other fund. He
again asked if the agency spends all the funds it receives for
those programs. Co-Chairman Harris thought Mr. Easton's answer
earlier was yes, although that could not be the case if the fund is
to grow to $140 million.
MR. EASTON clarified that the agency does not spend the money, but
it is committed to loans. Everything in both the funds is
committed to loans, but it is not entirely loaned out. He
emphasized that only a tiny fraction of the fund is spent on
operating costs. The money in the fund is either money that is
actually in the hands of the communities or money that is intended
for the communities.
MR. EASTON informed the committee that the communities do not repay
the fund until after the project is completed. He explained that
there may be an agreement with a community to build a project for
$3 million. Those payments may be made over the course of the next
three years at the rate of maybe $200,000 every couple of months.
Once the project is completed, the community has a year to collect
money for the service and then the community begins repayment.
CO-CHAIRMAN HARRIS surmised then that when the EPA grants end, the
bonding authority is no longer necessary because the state will not
have an obligation to match the grants.
MR. EASTON agreed with that assessment. He did note that the only
reason the agency will probably ask to maintain bonding authority
is that bonding authority could be used for other purposes besides
the match.
REPRESENTATIVE DYSON asked what a community would need to do in
order to qualify for a project under either of these programs.
Number 2000
MR. EASTON replied that the community would basically need to
comply with department regulations, which may require that they
submit plans for review. The community must also show how it will
repay the agency.
REPRESENTATIVE DYSON asked if eight people could qualify for a
project under either of these programs.
MR. EASTON clarified that those who qualify for these loans would
be a municipality as defined by state law.
REPRESENTATIVE DYSON understood then that to qualify for these
loans, a group would have to be organized under state law. He
asked if HB 304 includes any language that would qualify tribal
governments, if the state eventually recognizes tribal governments.
MR. EASTON asked if a tribal government would be considered a
municipality under state law.
REPRESENTATIVE DYSON said that was not his understanding. He then
commented that a second class city would not qualify as it is not
classified as a municipality.
MR. BURNS pointed out that a second class city is classified as a
municipality in Alaska.
REPRESENTATIVE DYSON reiterated his question regarding whether
tribal governments, if recognized, would qualify for these loans.
MR. EASTON said that he did not know. If tribal governments were
recognized by the state as a municipality, then tribal governments
would qualify for these loans.
Number 2121
REPRESENTATIVE DYSON asked if HB 304 says that in order to qualify,
the entity must be a municipality.
MR. BURNS interjected that statute already says that in order to
qualify the entity must be a municipality.
REPRESENTATIVE DYSON inquired as to where that is located in
statute.
REPRESENTATIVE MURKOWSKI referred Representative Dyson to page 9,
which references the municipality requirements.
MR. BURNS said that the citation should be the first line of the
Chapter 46 statutes.
REPRESENTATIVE HALCRO inquired as to who would be responsible for
maintenance once the system is complete and repayment begins.
MR. EASTON answered that the local community would be responsible
for maintenance of the system.
REPRESENTATIVE MURKOWSKI asked how this would tie in with the
Denali Commission and its work with safe and clean water.
MR. EASTON informed the committee that the Denali Commission is not
currently funding water and sewer projects. The loan programs
being discussed today do not serve the smaller communities. The
Denali Commission charter seems to be geared toward smaller, rural
communities in the state. Although the smaller communities would
be eligible for these loans, the smaller communities tend to be
more fully served by the Village Safe Water Program.
CO-CHAIRMAN HARRIS commented that the program being discussed seems
almost exclusively intended for communities with a projected income
stream or tax base. Co-Chairman Harris asked Mr. Easton to
continue his presentation.
Number 2252
MR. EASTON stated that much of his presentation had been covered
through the questions. He turned to the second part of HB 304,
which requests the authority to split the repayment stream. He
then referred to a graph entitled "CW & DW Set-Asides & Program
Support Revenue." He directed the committee's attention to the
line referencing the money coming in that is used to pay program
operating costs, which is identified as the federal set-asides. He
explained that the reason the line falls between FY03 and FY04 is
because one of the federal grants end. That is also the case for
the fall between FY08 and FY09. He noted that he would return to
this.
MR. EASTON informed the committee that a small portion of the
federal grants can be used by the agency to pay for program
operating costs. When those grants stop, the ability to use a
portion to pay for the program's operating costs also ends.
Therefore, HB 304 would allow the repayments from the communities
to be split into two parts and a small portion could be used to pay
for the program's operating costs. Mr. Easton then referred to a
diagram entitled, "Proposed Loan Fund Schematic." This diagram
illustrates the split that occurs with repayment. He explained
that HB 304 establishes an administrative fund which consists of an
income account and an operating account. A portion of the
community repayments comes into the income account. Through the
budget process, the agency asks the legislature to appropriate some
money from the income account to the operating account. Through
the operating budget process, the agency requests that money be
transferred from the operating account to the DEC operating budget.
He pointed out that the diagram entitled, "Proposed Loan Fund
Schematic" illustrates the changes that would occur under HB 304.
Number 2489
REPRESENTATIVE MURKOWSKI commented that some of the material
referring to how the program administration costs are covered says
that 5 percent is designated to pay for the administration program.
She asked if that 5 percent is from the repayment from the
communities. If that is the case, then she may have misunderstood
Mr. Easton's earlier statement that indicated that program support
would have to go through the legislative appropriation process and
come out through the operating budget.
MR. EASTON clarified that the percentage is actually 0.5 percent.
He reiterated that HB 304 would allow this money to be split, which
would be defined in regulation. Currently, the communities pay
about 4.3 percent on their loans. The funds have done well and the
agency is in a position that it can lower interest rates now.
Therefore, the agency would like to do the following by regulation.
First, it would want to decrease the interest rate on the community
loans to 2.5 percent. Second, the agency would want to take 2
percent and place that in the loan fund and place that .5 percent
in the income account. He explained that the .5 percent is based
on projections with regard to how much money will be repaid and
what would be required to cover the program's operating costs once
the federal grants end.
MR. EASTON posed the question of what would happen if the agency
collected too much money. If that happened, the agency could
request that the money be appropriated back to the corpus of the
loan or money could be loaned out directly from the income account.
On the other hand, if the .5 percent was not enough money to cover
the program's operating costs, then that percentage would be
increased by regulation to the point at which it would cover the
operating costs. Mr. Easton commented that this is a very
predictable system. Furthermore, he was confident that .5 percent
will cover the operating costs.
REPRESENTATIVE MURKOWSKI inquired as to who administers the loan
fund. She also asked what the rate of return has been
historically. She understood that the fund is doing well enough to
reduce the interest rate to the communities to 2.5 percent. What
happens if the market takes a down turn? She asked if it would be
prudent to keep the interest rate at its current level.
Number 2689
MR. BURNS answered that this fund is administered by the Treasury
Division of the Department of Revenue.
MR. EASTON stated that the rate of return has been about 6 percent.
MR. BURNS noted that 5 percent has been the average rate of return.
MR. EASTON turned to Representative Murkowski's question regarding
what would happen if 2.5 percent is not enough. He said that it is
not exactly a flat 2.5 percent. He explained that the interest
rate remains 2.5 percent until the municipal bond index reaches 8
percent. At that point, the 2.5 percent begins to fluctuate as a
percentage of the municipal bond index.
REPRESENTATIVE MURKOWSKI commented that she was a bit perplexed.
If it is known that there is a finite time period within which the
EPA grants are received and the desire is to build up the fund so
that it can maintain itself, would it not be prudent to keep the
interest rate at 4.3 percent.
MR. EASTON reiterated his confidence that the interest rate can be
reduced to 2.5 percent. He acknowledged that the fund would grow
faster and be larger with the 4.3 percent. However, the intent is
to balance the demand for loans with the health of the funds and
make the loans as attractive as possible.
REPRESENTATIVE DYSON returned to his concerns with regard to who
qualifies for these loans and if tribes would qualify, which is a
point that he needed resolved in order to vote for this bill to
move out of committee. He referred to Section 1, which refers to
"municipalities and other qualified entities under AS 46.03.032 and
46.03.036". He informed the committee that AS 46.03.032(1) says
that "'other qualified entity' means an intermunicipal or
interstate agency" and then refers to AS 29.35.010(13). That
statute, AS 29.35.010(13), says "to enter into an agreement,
including an agreement for cooperative or joint administration of
any function or power with a municipality, the state, or the United
States;". He asked then if the 200 plus tribes that are on the
Department of Interior's list qualify as an "other entity" and
allow the agency the authority to make these loans to tribes. Who
can provide a definitive answer on that?
Number 2957
CRAIG TILLERY, Assistant Attorney General, Environmental Section,
Civil Division, Department of Law, testified via teleconference
from Anchorage. He referred to Section 20, the Drinking Water
Fund, which provides the authority to provide financial assistance
to municipalities for municipal drinking water system projects. He
offered to go back and affirm that the term municipality does not
[refer to tribes - per the secretary's log notes].
TAPE 00-7, SIDE B
Number 2975
REPRESENTATIVE DYSON asked if Mr. Tillery would have any problems
with deleting the language "and other qualified entities" from HB
304.
MR. TILLERY said that he would have to review AS 46.03.032 and thus
could not provide the committee with a definitive answer at this
point. However, he believed that he would eventually be able to
assure the committee that the authority of HB 304 to implement the
Drinking Water Program is limited to municipalities.
REPRESENTATIVE DYSON noted that Mr. Tillery would also need to
explain why the language "and other qualified entities" is included
on page 1, line 11, and probably elsewhere.
MR. TILLERY interjected that the specified language is existing
law.
REPRESENTATIVE DYSON recognized that the specified language is
existing law. However, he inquired as to why that language needs
to remain if loans will only be made to organizations recognized
under state law.
MR. TILLERY referred to AS 46.03.032, existing law, and pointed out
that "other qualified entities" would refer to entities qualified
under federal law. "With the new portion under HB 304, that is
strictly limited to municipalities. But the existing law does go
to municipalities and other qualified entities." Mr. Tillery
understood Representative Dyson to be asking if HB 304 could be
used to amend the Clean Water Fund authorization to limit it from
its current status.
REPRESENTATIVE DYSON inquired as to the location of the language in
HB 304 that says money can only go communities organized under
state law.
MR. TILLERY referred to Section 20(b)(1). The language allowing
the Alaska Drinking Water Fund to function, limits financial
assistance "to municipalities for drinking water system projects".
That is different than existing law, AS 46.03.032, for the Clean
Water Fund.
REPRESENTATIVE DYSON referred to page 8, line 23, and inquired as
to where there is complimentary language for the Clean Water Fund.
MR. TILLERY directed Representative Dyson to AS 46.03.032(d)(2).
He commented that subsection (a) is sort of the parallel authority
for the Drinking Water Fund. He noted that existing law is broader
than the law being sought with HB 304.
REPRESENTATIVE DYSON commented that he was lost.
Number 2749
MR. TILLERY clarified that he was trying to say that the Clean
Water Fund is broader as it refers to "municipalities and other
qualified entities." He reiterated that existing law is broader
than the law being sought for the Drinking Water Fund with HB 304.
REPRESENTATIVE DYSON said that he understood then that HB 304 is
altering the Drinking Water Fund. He informed the committee of his
understanding that follows. If the state recognizes tribes and
tribes qualify as "other qualified entities," then the Clean Water
Fund would be available to tribal governments. Furthermore, HB 304
does not effect that.
MR. TILLERY agreed with Representative Dyson. With regard to the
"ifs" posed by Representative Dyson, Mr. Tillery did not know the
answer. If tribes do qualify as "other qualified entities," then
the Clean Water Fund would apply [be available to tribal
governments]. He reiterated that what is being done today, HB 304,
will not effect that.
MR. BURNS informed the committee that he attended the Senate
Community & Regional Affairs Committee meeting when the language
"other qualified entity" was inserted into the legislation
achieving bonding authority for the Clean Water Fund. At the time,
Senator Torgerson was the Chair of that committee. Mr. Burns said
that he knew the committee's intent. That committee wondered if a
housing authority adjacent to the boundary of a municipality could
apply through the municipality for [the Clean Water Fund]. He
believed that it is fairly clear that the "other qualified entity"
would have to go through the municipality, and therefore the loan
from the state would still be to the municipality.
REPRESENTATIVE DYSON requested that the U.S. code referred to with
regards to this language be pointed out. He then offered to find
that.
Number 2588
REPRESENTATIVE HALCRO inquired as to the agency's granted bonding
authority. Does the agency have to come before the legislature to
obtain approval for the amount the agency is going to bond in a
year. Are there any side boards based on how many bonds are sold?
MR. EASTON explained that the agency is limited to a total of $15
million per program, under existing statute. The agency does not
need to go before the legislature to sell up to $15 million, it
only needs to seek permission from the State Bond Committee. He
specified that this is the case if HB 304 passes.
REPRESENTATIVE HALCRO said that he wanted to make sure that there
are some sort of side boards every year.
REPRESENTATIVE MURKOWSKI referred to the DEC's fact sheet entitled,
"Interest Structure and Fee Rate Regulation Amendments." She asked
if these are proposed regulations or regulations that are currently
in place.
MR. EASTON answered that the regulations have been drafted, but
have not been public noticed which is the first step in the formal
rule-making process. That formal regulation amendment process has
not yet started.
REPRESENTATIVE MURKOWSKI pointed out that one of the changes in the
proposed regulations discontinues the federal requirement for using
Davis Bacon wages on clean water construction projects and allows
DEC to use Alaska's Department of Labor rates instead.
MR. EASTON deferred to Mr. Burns.
MR. BURNS explained that several portions of the Clean Water Act
have expired and are no longer mandatory upon the state.
Originally, the federal requirements were required to be in the
regulations in order to begin the program. Therefore, this is
merely housekeeping.
Number 2375
LARRY HANCOCK, City Manager, City of Cordova, testified via
teleconference from Cordova. He informed the committee that the
City of Cordova currently uses the Alaska Clean Water Fund and the
Alaska Drinking Water Fund for a total of $2.8 million. Mr.
Hancock said:
These two funds are the best sources of funds available
to our community for financing of capital clean water and
drinking water projects. These programs in conjunction
with the DEC construction grants, have been used almost
exclusively to upgrade our water and waste water systems
in our landfill refuse disposal system. Without these
funds, compliance orders from the EPA and the DEC,
resulting from infrastructure failure would not be met.
These are mandatory programs that we must comply with and
without this source of funds we would not be able to do
that.
MR. HANCOCK informed the committee that Cordova's only other source
of capital construction money is through the sale of bonds or
through loans with commercial institutions. He pointed out that
loans with commercial institutions have a much higher interest rate
than those available through the Drinking Water and Clean Water
Funds. For example, Cordova is currently in the process of a
municipal bond sale which will result in a projected interest rate
of over 5 percent. This is a significant difference in comparison
to the Drinking Water Fund of 3.5 percent. He noted that if HB 304
results in a decrease in interest rates for the Drinking Water and
Clean Water Funds, Cordova would save, for each 1 percent drop in
the interest rate, close to $700,000 over the term of the loans.
MR. HANCOCK said that if the state has to reduce revenue sharing
and cannot return maintenance money to the state [municipality],
the only option is for the community to reduce its expenditures.
If the state can help by reducing its interest rate, then
communities may be able to make up for the decrease in revenue
sharing. Furthermore, if the housekeeping can improve the
management of the loans, the communities will have less difficulty
in dealing with the construction grants and loan department in DEC.
In conclusion, Mr. Hancock stated that the City of Cordova strongly
supports the passage of HB 304.
REPRESENTATIVE MURKOWSKI inquired as to how long Cordova has taken
advantage of these bonds.
MR. HANCOCK explained that Cordova has two fairly new loans, but
the projects are still in the construction process and no money has
been drawn against the loan. He believed that a third loan is
three years old. In further response to Representative Murkowski,
Mr. Hancock answered that repayment has not been a problem.
However, he noted that it is a detailed process qualifying for
these loans. [The agency] is as tough in its qualification
standards as is any banking institution.
CO-CHAIRMAN HARRIS, in response to Representative Dyson, specified
that HB 304 next moves to the House Judiciary Committee and then
the House Finance Committee.
REPRESENTATIVE DYSON announced that he would not stop the movement
of HB 304 and would get his questions answered.
CO-CHAIRMAN HARRIS closed the public testimony at this time.
Number 2112
REPRESENTATIVE MURKOWSKI moved to report HB 304 out of committee
with individual recommendations and the accompanying fiscal notes.
There being no objection, it was so ordered.
ADJOURNMENT
There being no further business before the committee, the House
Community & Regional Affairs Standing Committee meeting was
adjourned at 9:24 a.m.
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